What Will it Take to Overcome the Challenges in Total Revenue Management?

By Ally Dombey Managing Director, Revenue by Design | October 27, 2013

Much of revenue management’s focus to date has been applied to rooms revenue optimization, with RevPAR ( Revenue per Available Room ) being the principal benchmark for the revenue manager to measure success.

However, over the past decade the industry has seen a proliferation in channels to market dominated by online travel agents with huge customer databases and sophisticated consumer marketing techniques, and rising operating costs, principally in the area of energy and food. However, using RevPAR as the only benchmark provides an incomplete picture of a hotel’s operation since it is unable to expose underlying trends in costs that significantly impact profitability.

Commenting on the trend, Pablo Alonso, General Manager of benchmark company HotStats said, “Historically, RevPAR has been an effective and trusted indicator of overall hotel performance, however, rising operating costs and undistributed expenses plus the changing trends in customer booking behavior is widening the gap between revenues and profit and weakening this historic correlation, making it more necessary than ever to understand the underlying relationship between revenues, costs and ultimately how those revenues flow through down to profit.”

RevPAR as a benchmark focuses on top line revenue generation and using this benchmark in isolation will favor pricing strategies that drive room revenues over profitability. TRevPAR ( Total Revenue per Available Room ) and GOPPAR ( Gross Operating Profit per Available Room ) are two benchmarks used to monitor performance beyond RevPAR, giving a more complete picture of the success of an operation and its overall profitability.

Alonso comments on the use of the two benchmarks; “TRevPAR is defined as Total Revenue per available room, so it is basically an extended version of RevPAR to include all other sources of income including F&B outlets, Conference space, health club and even the Golf course. It is important to remember that in the Full Service hotel space, other profit centers may account for 25% to 45% of total hotel revenues, so in any scenario, it is a very relevant piece of the cake to which we are not yet actively applying data driven, revenue management principles in order to optimize these other sources of revenue".

Says Alonso, "On the other hand, GOPPAR reflects the actual profit generated by each available hotel room after deducting all the departmental operating costs, as well as undistributed expenses ( Administration & General, Sales & Marketing, Utility costs… ) from the total revenues generated. This makes hotel management directly responsible for the overall profitability of a hotel and provides the ultimate measure of not just how effectively we are maximizing our revenues but how effectively we are optimizing them.”

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Coming up in January 2018...

Mobile Technology: Relentless Innovation

Technology has become a crucial component in attracting and retaining hotel guests, and the need to enhance a guest’s technology experience is driving a relentless pace of innovation. To meet and exceed guest expectations, 54% of hotels will spend more on technology in 2018, and mobile solutions in particular will top the list of capital investments. Many hotels are integrating mobile booking, mobile keys, mobile payments and mobile check-in into their operations. Other hotels are emphasizing the in-room experience, boosting bandwidth and upgrading flat screen TVs to more easily interface with guest mobile devices. And though not yet mainstream, there are many exciting technology developments on the near horizon. The Internet of Things (loT) is taking form in some places, and can be found in guest room control systems, voice activation systems, and in wearable sensors that can be used for access and payment options. Virtual reality headsets are available at some hotels so guests can enjoy virtual trips to exotic locations or if off-property, preview conference facilities and guest rooms. How long will it be before a hotel employs a fleet of robots for room service, or utilizes a hologram as a concierge, or installs gesture-controlled walls that feature interactive digital displays? Some hotels are already using augmented reality for translation services, or interactive wall maps, or even virtual décor. This pace of innovation is challenging property owners and brands to stay on top of the latest technology trends while still addressing current projects. The January Hotel Business Review will explore what some hotels are doing to maximize their opportunities in the mobile technology space.